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Research Details
Incorporation and the Audit Market, Journal of Accounting and Economics
Abstract
This paper evaluates the effects of allowing auditors to limit their liability by incorporating. Using a model that integrates the audit market with the market for the firms being audited, it predicts that, once incorporation becomes an option, the least wealthy employed auditors under unlimited liability either exit the audit market or earn lower profits from auditing than before. The most wealthy employed auditors earn higher profits; they incorporate and remove wealth from their corporations. The model also explains the recent shift in auditors' attitudes toward incorporation, and why insurance and other wealth-sheltering devices imperfectly substitute for incorporation.
Type
Article
Author(s)
Date Published
1995
Citations
Dye, Ronald A.. 1995. Incorporation and the Audit Market. Journal of Accounting and Economics.(1): 75-114.